Political Arithmetic: Simon Kuznets and the Empirical Tradition in Economics

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Volume Title: Political Arithmetic: Simon Kuznets and the Empirical Tradition in Economics

Volume Author/Editor: Robert William Fogel, Enid M. Fogel, Mark Guglielmo, and Nathaniel Grotte

Volume Publisher: University of Chicago Press

Volume ISBN: 0-226-25661-8, 978-0-226-25661-0 (cloth)

Volume URL: http://www.nber.org/books/foge12-1

Conference Date: n/a

Publication Date: March 2013

Chapter Title: Front matter, preface for "Political Arithmetic: Simon Kuznets and the Empirical Tradition in Economics"

Chapter Author(s): Robert William Fogel, Enid M. Fogel, Mark Guglielmo, Nathaniel Grotte

Chapter URL: http://www.nber.org/chapters/c12766

Chapter pages in book: (p. i - xiv) political a ithmetic NBER Series on Long-Term Factors in Economic Development A National Bureau of Economic Research Series Edited by Claudia Goldin also in the series Claudia Goldin Joseph P. Ferrie Understanding the Gender Gap: An Economic Yankeys Now: Immigrants in the Antebellum History of American Women (Oxford University U.S., 1840–1860 (Oxford University Press, Press, 1990) 1999)

Roderick Floud, Kenneth Wachter, and Robert A. Margo Annabel Gregory Wages and Labor Markets in the United States, Height, Health and History: Nutritional Status 1820–1860 (University of Chicago Press, 2000) in the United Kingdom, 1750–1980 (Cambridge Price V. Fishback and Shawn Everett Kantor University Press, 1990) A Prelude to the Welfare State: The Origins of Robert A. Margo Workers’ Compensation (University of Chicago Race and Schooling in the South, 1880–1950: An Press, 2000) Economic History (University of Chicago Press, Gerardo della Paolera and Alan M. Taylor 1990) Straining at the Anchor: The Argentine Currency Samuel H. Preston and Michael R. Haines Board and the Search for Macroeconomic Sta- Fatal Years: Child Mortality in Late Nineteenth- bility, 1880–1935 (University of Chicago Press, Century America (Princeton University Press, 2001) 1991) Werner Troesken Barry Eichengreen Water, Race, and Disease (MIT Press, 2004) Golden Fetters: The Gold Standard and the B. Zorina Khan Great Depression, 1919–1939 (Oxford University The Democratization of Invention: Patents and Press, 1992) Copyrights in American Economic Development, Ronald N. Johnson and Gary D. Libecap 1790–1920 (Cambridge University Press, 2005) The Federal Civil Service System and the Prob- Dora L. Costa and Matthew E. Kahn lem of Bureaucracy: The Economics and Politics Heroes and Cowards: The Social Face of War of Institutional Change (University of Chicago (Princeton University Press, 2008) Press, 1994) Roderick Floud, Robert W. Fogel, Bernard Naomi R. Lamoreaux Harris, and Sok Chul Hong Insider Lending: Banks, Personal Connections, The Changing Body: Health, Nutrition, and and Economic Development in Industrial New Human Development in the Western World since England (Cambridge University Press, 1994) 1700 (Cambridge University Press, 2011) Lance E. Davis, Robert E. Gallman, and Karin Stanley L. Engerman and Kenneth L. Sokoloff Gleiter Economic Development in the Americas since In Pursuit of Leviathan: Technology, Institutions, 1500: Endowments and Institutions (Cambridge Productivity, and Profi ts in American Whaling, University Press, 2012) 1816–1906 (University of Chicago Press, 1997) Robert William Fogel, Enid M. Fogel, Mark Dora L. Costa Guglielmo, and Nathaniel Grotte The Evolution of Retirement: An American Eco- Political Arithmetic: Simon Kuznets and the Em- nomic History, 1880–1990 (University of Chicago pirical Tradition in Economics (University of Chi- Press, 1998) cago Press, 2013) National Bureau of Economic Research officers Kathleen B. Cooper, Chairman Kelly Horak, Controller and Assistant Corporate Martin B. Zimmerman, Vice Chairman Secretary James M. Poterba, President and Chief Execu- Alterra Milone, Corporate Secretary tive Offi cer Gerardine Johnson, Assistant Corporate Robert Mednick, Treasurer Secretary directors at large Peter C. Aldrich Mohamed El- Erian Michael H. Moskow Elizabeth E. Bailey Linda Ewing Alicia H. Munnell John H. Biggs Jacob A. Frenkel Robert T. Parry John S. Clarkeson Judith M. Gueron James M. Poterba Don R. Conlan Robert S. Hamada John S. Reed Kathleen B. Cooper Peter Blair Henry Marina v. N. Whitman Charles H. Dallara Karen N. Horn Martin B. Zimmerman George C. Eads John Lipsky Jessica P. Einhorn Laurence H. Meyer directors by university appointment George Akerlof, California, Berkeley John P. Gould, Chicago Jagdish Bhagwati, Columbia Mark Grinblatt, California, Los Angeles Timothy Bresnahan, Stanford Bruce Hansen, Wisconsin–Madison Alan V. Deardorff , Michigan Marjorie B. McElroy, Duke Ray C. Fair, Yale Joel Mokyr, Northwestern Franklin Fisher, Massachusetts Institute of Andrew Postlewaite, Pennsylvania Technology Uwe E. Reinhardt, Princeton Edward Foster, Minnesota David B. Yoffi e, Harvard directors by appointment of other organizations Bart van Ark, The Conference Board William W. Lewis, Committee for Economic Christopher Carroll, American Statistical Development Association Robert Mednick, American Institute of Certifi ed Jean- Paul Chavas, Agricultural and Applied Public Accountants Economics Association Alan L. Olmstead, Economic History Association Martin Gruber, American Finance Association Peter L. Rousseau, American Economic Ellen L. Hughes- Cromwick, National Association Association for Business Economics Gregor W. Smith, Canadian Economics Thea Lee, American Federation of Labor and Association Congress of Industrial Organizations directors emeriti Glen G. Cain Lawrence R. Klein John J. Siegfried Carl F. Christ Rudolph A. Oswald Craig Swan George Hatsopoulos Peter G. Peterson Saul H. Hymans Nathan Rosenberg Relation of the Directors to the Work and Publications of the National Bureau of Economic Research

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8. Unless otherwise determined by the Board or exempted by the terms of paragraphs 6 and 7, a copy of this resolution shall be printed in each NBER publication as described in paragraph 2 above. political a ithmetic Simon Kuznets and the Empirical Tradition in Economics

Robert William Fogel, Enid M. Fogel, Mark Guglielmo, and Nathaniel Grotte

The University of Chicago Press$chicago and london Winner of the 1993 Nobel Prize for Economics, Robert William Fogel is the Charles R. Walgreen Distinguished Service Professor of American Institutions at the Booth School of Business, director of the Center for Population Economics, and a member of the Department of Economics and of the Committee on Social Thought at the University of Chicago. He is also a research associate of the National Bureau of Economic Research. Enid M. Fogel was associate dean of students at the Booth School of Business. Mark Guglielmo is assistant professor of economics at Bentley University. Nathaniel Grotte is associate director of the Center for Population Economics.

The University of Chicago Press, Chicago 60637 The University of Chicago Press, Ltd., London © 2013 by The University of Chicago All rights reserved. Published 2013. Printed in the United States of America

22 21 20 19 18 17 16 15 14 13$$1 2 3 4 5

ISBN-13: 978-0- 226- 25661- 0 (cloth) ISBN-13: 978-0- 226- 02072- 3 (e-book)

Library of Congress Cataloging-in-Publication Data

Fogel, Robert William. $Political arithmetic : Simon Kuznets and the empirical tradition in economics / Robert William Fogel, Enid M. Fogel, Mark Guglielmo, and Nathaniel Grotte. $$$pages ; cm. — (NBER series on long-term factors in economic development) $Includes bibliographical references and index. $ISBN 978-0-226-25661-0 (cloth : alkaline paper) — ISBN 978- 0-226-02072-3 (e-book) 1. Kuznets, Simon, 1901–1985—Inﬂ u- ence. 2. Economics—Research—United States. 3. National income—United States—Accounting—History—20th century. 4. National Bureau of Economic Research. I. Fogel, Enid M. II. Guglielmo, Mark. III. Grotte, Nathaniel. IV. Title. V. Series: NBER series on long-term factors in economic development. $HC110.I5F64 2013 $339.3'2—dc23 2012031749 o This paper meets the requirements of ANSI/NISO Z39.48- 1992 (Permanence of Paper). Contents

Preface xi

Introduction: The Amazing Twentieth Century 1 1 The Rise of Academic Economists before World War I 10 2 The Early History of the NBER 21 3 The Emergence of National Income Accounting as a Tool of Economic Policy 49 4 The Use of National Income Accounting to Study Comparative Economic Growth 65 5 The Scientifi c Methods of Simon Kuznets 89 6 Further Aspects of the Legacy of Simon Kuznets 106 7 The Quarter Century since the Death of Simon Kuznets 115

Acknowledgments 119 References 121 Index 135

To Penelope Enid Anderegg and Maximillian Th or Pietraszewski, great- grandchildren of Enid and Bob

Preface

This book is about the scientifi c work of Simon Kuznets and his impact on economics as a discipline. Kuznets was the winner of the third Nobel Prize in economics, which he received in 1971 for his work on comparative economic growth. He was also an exceptionally inspir- ing teacher who infl uenced the research and teaching of some of the best economists in economics and demography. The book begins with a view of the great accomplishments of the twentieth century. Chapter 1 off ers a history of the development of economics as an academic discipline prior to World War I. Chapter 2 describes the establishment of the NBER as an objective collector and analyzer of economic data that would be useful to policymakers. Chapter 3 describes the development of national income accounting at the NBER as a major tool for analyzing and assessing the perfor- mance of the economy and for guiding government interventions. It also describes the leading role played by Kuznets in demonstrating the power of this tool as a successful guide to the allocation of avail- able resources between military needs and the civilian economy during World War II. Chapter 4 deals with Kuznets’s use of national income accounting to analyze the factors accounting for the diff erences in the rate of growth among nations, the specifi c work for which he was awarded the Nobel Prize. Chapter 5 reviews Kuznets’s scientifi c methods. Chapter 6 examines the continuing impact of Kuznets’s research and his infl uence on economics. Chapter 7 considers the global economy in the quarter century aft er Kuznets’s death with forecasts of the nature and future of both the domestic and the global economies. xii Preface Kuznets is introduced early in the introduction, then recedes into the background until chapter 3. To lighten that drought, we address now a question oft en put to us: What was Kuznets like as a person? To Robert Fogel, he was a beloved teacher who took a fatherly interest in both the intellectual and the personal aspects of his students’ lives. That interest did not end aft er those students completed their gradu- ate work and were off teaching somewhere on their own. Kuznets en- couraged them to keep in touch and come visit him at home when- ever they were in town. “And so we did,” said Fogel. Enid and Bob, with children in tow, of- ten visited Simon either at his offi ce or his home. Aft er bouncing each of the boys on his knee and talking with them for a bit, he would settle back in his chair and ask, “So, Mr. Fogel, what have you been working on lately?” He listened to the answer carefully, sometimes probing for more detail, occasionally off ering suggestions. Kuznets had many students, all of whom wanted his help aft er they were launched on their own careers. When Fogel asked Simon to give a paper at his workshop in Chicago, Simon said, “You don’t need me.” But, when a less successful student issued the same invitation, Kuznets accepted without hesitation. One day shortly aft er Simon’s death, Fogel was at Kuznets’s home, helping organize his papers for deposit at the Harvard Library. “Si- mon,” his widow, Edith, said, “was modestly immodest.” By that, she meant he was immodest in his desire to identify and measure the driv- ing forces of economic growth but modest about his capacity to do so. He was always more focused on what he still had to learn than on what he already knew. Born in Pinsk, Russia, on April 30, 1901, Kuznets received his ed- ucation in primary school and gymnasium in Kharkov. He served briefl y as a section head in the bureau of labor statistics of the Ukraine before emigrating to the United States in 1922. He entered Columbia University, where he received his B.A. in 1923, his M.A. in 1924, and his Ph.D. in 1926. His principal teacher at Columbia, and his lifelong mentor, was Wesley Clair Mitchell, a founder of the NBER and its director of research from 1920 to 1946. Kuznets was a member of the research staff of the NBER from 1927 to 1961. It is there that he met Edith Handler. They were married in Preface xiii 1929 and had two children, Paul and Judith. Kuznets also held profes- sional appointments in economics and statistics at the University of Pennsylvania (1930–54) and in economics at Johns Hopkins Univer- sity (1954–60) and Harvard University (1960–71). During 1932–34, he served in the Department of Commerce, where he constructed the fi rst offi cial estimates of U.S. national income and laid the basis for the National Income Section. During World War II, he served as the associate director of the Bureau of Planning and Statistics of the War Production Board. He was instrumental in establishing the Con- ference on Research in Income and Wealth (which brought together government offi cials and academic economists engaged in the development of the U.S. national income and product accounts) in 1936 and helped establish its international counterpart, the International Association for Research in Income and Wealth, in 1947. He served as an adviser to the governments of China, Japan, India, Korea, Tai- wan, and Israel in the establishment of their national systems of economic information. Despite his extensive activities in the design of government pro- grams of economic intelligence and his work in consulting with such private agencies as the Growth Center of Yale University and the Social Science Research Council, Kuznets was a prolifi c analyst of economic processes and institutions. During the course of his career, he pro- duced thirty- one books and over two hundred papers, many of which set off major new streams of research. Among the fi elds in which he pioneered, in addition to national income accounting, were the study of seasonal, cyclic, and secular fl uctuations in economic activity; the impact of population change on economic activity; the study of the nature and causes of modem economic growth based on the measurement of national aggregate statistics; the household distribution of income and its trends in the United States and other countries; the measurement and analysis of the role of capital in economic growth; the impact of ideology and other institutional factors on economic growth; changing patterns in consumption and in the use of time; and methods of economic and statistical analysis. Kuznets’s intellectual contributions were acknowledged by his colleagues in many ways, including his election as president of the American Statistical Associa- tion in 1949 and of the American Economic Association in 1954.